Shares of Procter & Gamble Company (PG) jumped 2.0 % during today's afternoon session, bringing their 52 week performance to 17.0%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's poor growth indicators and mixed market sentiment.
The Procter & Gamble Company provides branded consumer packaged goods worldwide. The large-cap Consumer Discretionary company is based in Cincinnati, United States and has 107,000 full time employees.
PG's P/E Ratio Is Comparable to its Sector Average
Compared to the Consumer Discretionary sector's average of 22.33, Procter & Gamble Company has a trailing twelve month price to earnings (P/E) ratio of 25.3 and an expected P/E ratio of 21.7. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($5.89) or forward earnings per share ($6.87).
Earnings is another term for the net profits left over after subtracting cost of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Procter & Gamble Company's P/E ratio is near its sector average of 22.33, we can deduce that the market is fairly valuing the company's earnings.
Procter & Gamble Company Is Overvalued in Terms of Expected Growth
Procter & Gamble Company's PEG ratio is 3.02. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Procter & Gamble Company's case, it tells us the company is overvalued.
PG Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Procter & Gamble Company's P/B ratio of 7.66 is higher than its sector average of 3.12, such a margin of safety does not exist for the stock.
PG's Weak Cash Flow Generation Is Troubling
The table below shows that Procter & Gamble Company is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Procter & Gamble Company's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 45691735128.7%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-08-05 | 16,723,000 | -3,046,000 | 19,769,000 | -6.38 |
| 2021-08-06 | 18,371,000 | -2,745,000 | 21,116,000 | 3.28 |
| 2020-08-07 | 17,403,000 | -3,043,000 | 20,446,000 | 12.37 |
| 2019-08-06 | 15,242,000 | -2,953,000 | 18,195,000 | -0.66 |
| 2018-08-07 | 14,867,000 | -3,448,000 | 18,315,000 | 17.66 |
| 2017-08-07 | 12,753,000 | -2,813,000 | 15,566,000 |
Procter & Gamble Company's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Procter & Gamble Company's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Procter & Gamble Company's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-08-05 | 80,187,000 | -42,157,000 | 47 | -7.84 |
| 2021-08-06 | 76,118,000 | -37,108,000 | 51 | 2.0 |
| 2020-08-07 | 70,950,000 | -35,250,000 | 50 | 2.04 |
| 2019-08-06 | 67,684,000 | -34,768,000 | 49 | 0.0 |
| 2018-08-07 | 66,832,000 | -34,268,000 | 49 | -2.0 |
| 2017-08-07 | 65,058,000 | -32,535,000 | 50 |
Procter & Gamble Company's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-08-05 | 80,187,000 | -20,217,000 | 22 | -8.33 |
| 2021-08-06 | 76,118,000 | -21,024,000 | 24 | 9.09 |
| 2020-08-07 | 70,950,000 | -19,994,000 | 22 | 10.0 |
| 2019-08-06 | 67,684,000 | -19,084,000 | 20 | -4.76 |
| 2018-08-07 | 66,832,000 | -18,853,000 | 21 | 0.0 |
| 2017-08-07 | 65,058,000 | -18,568,000 | 21 |
Procter & Gamble Company's cost of revenue is growing at a rate of -0.0% in contrast to 4.1% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is 0.2 and the average operating margins growth rate is 0.9, with coefficients of variability of 2.8% and 6.3% respectively.
We See Mixed Market Signals Regarding PG
Procter & Gamble Company has an average rating of buy and target prices ranging from $179.0 to $135.0. At its current price of $149.12, the company is trading -8.39% away from its target price of $162.77. 0.6% of the company's shares are linked to short positions, and 66.1% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-06-30 | Vanguard Group Inc | 10% | 224,950,896 | $33,544,676,513 |
| 2023-06-30 | Blackrock Inc. | 7% | 158,336,762 | $23,611,177,176 |
| 2023-06-30 | State Street Corporation | 4% | 103,104,467 | $15,374,937,615 |
| 2023-06-30 | Geode Capital Management, LLC | 2% | 45,120,728 | $6,728,402,739 |
| 2023-06-30 | Morgan Stanley | 2% | 45,088,952 | $6,723,664,302 |
| 2023-06-30 | Wellington Management Group, LLP | 1% | 32,561,356 | $4,855,549,247 |
| 2023-06-30 | Bank of America Corporation | 1% | 31,574,528 | $4,708,393,461 |
| 2023-06-30 | Northern Trust Corporation | 1% | 28,642,288 | $4,271,137,846 |
| 2023-06-30 | Price (T.Rowe) Associates Inc | 1% | 25,531,767 | $3,807,296,970 |
| 2023-06-30 | FMR, LLC | 1% | 24,760,338 | $3,692,261,481 |
